Trade Decline of Kazakhstan Through the Glance of the EEU*

The most recent reports on the external trade of the Committee of Statistics of the Ministry of the National Economy of Kazakhstan have shown a large decline. During the first half of 2016 the overall amount of trade with other countries has fallen by approximately one third. This is the most serious decline since 2009.

With the decline of the oil price in 2014 economies of the EEU entered into crisis. As the many industries of the EEU members has shrank, so did the trade flows between its members. This produced a more dramatic effect on Russia and Kazakhstan which depend more on oil extraction than on Kyrgyzstan, Belarus and Armenia, which apart from being more diversified economies, have far more smaller shares in the GDP of the EEU. In general, economic integration into the world economy through trade has been declared as a part of the economic policy of Kazakhstan. Rapidly growing external trade has always been one of the main pillars of the economic growth of Kazakhstan during previous years. The statistics concerning the trade inside the EEU for the first half of 2016 turned out to be worse than many experts had expected. Thus, during the first half of 2016 the overall trade turnover decreased by 30.4%. This was the first serious shrinkage of trade since the crisis of 2008. However, the falling trend of 2009 did not last very long as the trade rapidly recovered and continued to grow already in 2010 after the oil prices got back to their previous levels. This can be seen from Figure 1 below.

Figure 1: External trade turnover of Kazakhstan mln. USD

Source: Committee of Statistics of the Ministry of the National Economy of Kazakhstan

During the first half of 2016 the trade with the EEU members has fallen by 31.2% whereas the trade with the rest of the world has shrunk by 30.3%. Kazakhstan is losing its imports as well as its exports which decreased by 30.4% and 31.7% respectively during the first six month of this year and we observe even up to 67.9% and 81.6% decrease in exports like in case of exports to Belarus and Armenia. The figures of trade turnover are shown in Table 1 below.

Source: Committee of Statistics of the Ministry of the National Economy of Kazakhstan

Kazakhstan has also lost about one third of its trade with countries outside the EEU. Table 2 below shows the change of the patterns of trade by industries during the first half of 2016 compared to the same period of the previous year. As we can see, during this period all industries have experienced a decline in exports except for machinery and equipment and agriculture which show an increase in exports by 50.3% and 6.2%. However, these industries comprise negligibly small shares of the total exports. More than two thirds of the exports come from the extractive industry which experienced exactly the largest decline of over 40%. Other industries with large shares in the exports like metallurgy and agriculture have also shown very negative changes. Thus, the overall decline of exports is predominantly due extractive industry which mainly consists of the extraction of crude oil. It is noteworthy to mention that, the decrease of the exports of oil and of other minerals are due to the fall of prices not real quantities.

Apart from decrease in exports, there is also a large decrease in imports from the countries outside the EEU by about one third. The structure of imported goods also appears to be diverse in terms of industries they come from. Thus, the imports are dominated mainly by four major sectors of economy that are machinery and equipment (45.6%), chemical industry (15.3%), metallurgy (12%) and agriculture (9.9%). Industries that were affected most by the decline of imports are wood and pulp and extractive industry which lost 48.5% and 40.7% of their imports respectively whereas metallurgy and agriculture are the least affected ones with 8.5% and 16.7% of decline.

Despite such compelling negative figures and facts, many official authorities make a rather optimistic forecasts on further trade volumes. Thus, in July of this year the Board of the Eurasian Economic Commission approved the medium-term forecast for the agro-industrial complex development of the EEU for the period from 2016 till 2017. According to this forecast, during the abovementioned period the agricultural production is expected to grow by 8%, exports by 19% and the bilateral trade by 15% compared to 2015. It is also projected to reach a 94% self-sufficiency in basic agricultural commodities that include grains, meat, fruits and vegetables inside the EEU. Moreover, according to the forecast of the Ministry of the National Economy, Kazakhstan is expected to reach a 0.5% of real economic growth by the end of this year and 1.9% in 2017.

One of the deficiencies of Kazakhstan and as well as of many other Eurasian countries is the lack of export diversification as it was already pointed out by Cusolito and Hollweg (2015). So far, around 40 countries have expressed their willingness to cooperate with the EEU in different forms including trade liberalization with the EEU. Agreements about cooperation are already in effect with Vietnam, Thailand, Cambodia, Singapore and several other countries. In the context of current decline of trade in Kazakhstan and the EEU an establishment of more liberal trade agreements with third countries would give a significant positive impact. In this sense, the accession of Kazakhstan into the WTO has facilitated the access of non EEU countries to the markets of Kazakhstan and EEU (Vinokurov et al, 2015).

Kazakhstan is currently facing the deepest trade crisis since 2009 and there is a very high probability that the trade turnover of Kazakhstan and as well as of other members of the EEU will continue to shrink. Moreover, there have been no such long lasting decline of trade since Kazakhstan became an independent state and it imposes a serious obstacle that impedes the economic growth. Since the 2011 Kazakhstan has reached a rather deep level of integration with other members of the EEU in terms of trade. This and other external factors like low oil prices, lack of trade infrastructure etc. urge to apply new approaches within the framework of the EEU that would deeper trade cooperation inside the union and allow more favorable trade regimes with countries outside the EEU. The deeper integration should not undermine creation of more trade barriers for the third countries as it was pointed out by Arupov et al (2015[ПO3] ). Apart from geographical diversification, there is also a serious need for diversification of trade in terms of industries involved which is itself a complicated issue of the top importance for the economy of Kazakhstan. A deeper insight shows that the trade crisis of Kazakhstan both in the framework of the EEU and the in the general context reveals a more fundamental challenges of trade policy and of the national economy itself.